High-tech manufacturing in the New North: a beacon of stability

Posted on May 15, 2017 :: Insight From
Marc Schaffer
Posted by , Insight on Manufacturing Staff Writer

Economists love to preach about the importance of technology in driving economic growth. The story is simple: technology increases productivity, productivity increases profit, profit increases income, income causes economic development. Of course, the simple story faces many challenges once we step outside of the economists’ world of assumptions.

Technology can impact the labor force in several ways. It can serve as a complement to the labor force by making existing workers more productive. It can also serve as a substitute by replacing existing workers in the labor force. On a larger scale, we can think of the industry impacts of technology. For example, 41 percent of our labor force worked in the agricultural sector in 1900, and that number fell to 2 percent by 2000. Technology not only increased the productivity of the sector but reduced the need for those workers, while creating new jobs in other industries. So how has technology in the manufacturing sector impacted the labor force in the state of Wisconsin?

When people hear Wisconsin, they think of beer, cheese and the Packers; technology and innovation aren’t typically on the top of that list. There are hubs of technology and innovation in Wisconsin, such as key companies, initiatives and venture capital funding efforts in Madison and Milwaukee, but what about other areas of the state? How is technology impacting the labor force in other economic regions, such as the New North?

A quick look at the Bureau of Labor Statistics’ Quarterly Census of Employment and Wages can shed some light on this question. Using broad-based industry classifications of high-technology sectors outlined by a BLS economist, Daniel Hecker, we can explore the changes in high-tech employment. To be fair, the term “high-tech industry” is loaded with interpretation and spans various industries.

For purposes of this discussion and exploration of the New North, let’s focus on high-tech manufacturing industries. These include sectors such as machinery, chemical and transportation manufacturing.

So what’s happening in the high- tech manufacturing sector? It is no surprise that this sector has been facing many challenges from a national perspective due to various trade agreements, outsourcing and technological advances. These challenges have led to falling employment shares, a pattern that is consistent for the state of Wisconsin as well.

From 2005 to 2015, employment in the high-tech manufacturing sector fell from 4.4 percent to 3.6 percent of U.S. employment, and fell from 6.3 percent to 5.4 percent of Wisconsin employment. While a mere 1 percent change seems small, this is 1 percent of the employed labor force, or around 1.6 million jobs for the United States and around 30,000 jobs in Wisconsin. These are jobs that have been lost in these sectors. A shining light for Wisconsin in this sector has been the strength of the New North region, which has remained steadfast in its high-tech manufacturing employment, moving from 4.9 percent to 5.0 percent over the same period.

A quick look at the number of establishments in this sector over time sheds some explanation to these falling employment shares in Wisconsin. From 2005 to 2015, the number of establishments in Wisconsin fell from 2,583 to 2,391 in this sector, while the number of establishments in the New North was essentially unchanged. Now, the change in establishments can be due to outsourcing, firm failure and even consolidation, but regardless of the cause, this coincides with the falling employment share at the state level for high-tech manufacturing. All the while, the New North has provided a source of economic stability for this sector.

If technology is serving as a substitute in this sector, then over time, as technology has advanced, we would expect that the number of employees per establishment in this sector would fall. In looking at the New North, which essentially kept the number of establishments unchanged, we see from 2005 to 2015, the average number of high-tech manufacturing workers per establishment grew from 61 workers to 66 workers per establishment on average. This suggests that while innovation and increases in technology over this period have occurred, this sector in the New North added workers on average rather than replaced them.

In short, the high-tech manufacturing sector in the New North is complementing its workforce with technology rather than substituting it on a regional level. When we talk about technology in Wisconsin, let’s not forget to mention its role in one of our strongest sectors, manufacturing, as well as areas outside of Madison and Milwaukee. Φ

Marc Schaffer is an associate professor of economics and the co-director of the Center for Business and Economic Analysis at St. Norbert College.